THE IMPACT OF FINANCIAL AND MACROECONOMIC VARIABLES ON FINANCIAL DISTRESS: EVIDENCE FROM PAKISTANI MARKET

Abstract

The purpose of this paper is to check the effect of financial ratios and
macroeconomic variable on financial distress. The population of this study is
559 non-financial companies that are listed on the Pakistan stock exchange.
The final sample size is 285 non-financial companies for the period of 2013-
2017. Financial distress is dependent variable that shows categorical in
nature. Therefore, this paper used logistic regression for the analysis. The
result shows that profitability (EBITTA) has a negative significant
relationship with financial distress, but RETA shows a positive significant
relationship with financial distress. The result shows that liquidity ratio
(WCTA) has a negative significant relationship with financial distress, but
CACL shows a positive and insignificant relationship with financial distress.
Additionally, Inflation has a positive significant relationship with financial
distress. In the context of Pakistan, previous studies are limited to explore the link between financial and macroeconomic variables on financial distress.
This paper also contributes to the literature and fills this gap. This study also
indicates that to investigate the association between financial and
macroeconomic variables on financial distress in the emerging market.
Previous studies are limited to using this model and methodology especially
in the context of Pakistan.